EDITORIAL: Getting burned by biofuels

When individuals attempt to solve a problem and end up creating unforeseen troubles, it’s called the law of unintended consequences. When government does it, it’s called the law of the land. In its zeal for regulation, the federal leviathan has invented a market for something called renewable-fuel credits and, not surprisingly, it’s filled with fraud. Businesses are getting swindled and Uncle Sam’s unsympathetic response is “heads I win, tails you lose.”

The Energy Policy Act of 2005 mandated that the Environmental Protection Agency (EPA) implement a Renewable Fuel Standard forcing fuel refiners to dilute their petroleum products with vegetable oil, corn, algae and animal fat so companies that label themselves “green” would reap a financial windfall. Refiners who can’t make those substances on their own are allowed to buy renewable-fuel credits to meet their federal quota. Each credit carries a 38-digit renewable identification number (RIN) as proof of purchase. The credits can be traded.

As this is an entirely artificial market that serves no purpose other than to make politicians and their political donors happy, it’s rife with fraud. Since November, the EPA has claimed 140 million invalid RINs have been sold. The agency alleges 48 million bogus credits came from Absolute Fuels of Texas, netting about $62 million. Another 32 million were purportedly sold by Clean Green Fuel LLC in Maryland for $9 million, and 60 million were marketed by Green Diesel of Texas, worth $84 million.

House Republicans expect the scam to hit at least 300 million fake credits. “Unfortunately, the production of and trade in fraudulent or invalid RINs has developed into a large and growing problem,” wrote House Energy and Commerce Committee chairman Fred Upton, Michigan Republican, and three other committee members in a May 24 letter to EPA Administrator Lisa Jackson. “And EPA’s efforts to address the problem so far appear ineffective, and in some respects have harmed the renewable-fuels marketplace.”

Rather than taking responsibility for authenticating the RIN market, the EPA is putting refiners on the hook for unwittingly buying fake RINs. In March, the agency announced it would fine firms 10 cents for each invalid credit they use and 20 cents for each credit missing from their quotas. One credit trading company, OceanConnect, filed suit in federal court in April, charging the EPA’s “buyer beware” policy is undermining the biofuels industry.

That’s an industry that should be undermined if it’s unable to offer consumers an affordable product that they want. Instead, Washington insiders who view Big Oil as the root of evil have decided the nation must transition to energy products that aren’t anywhere near viable. It’s the essence of crony capitalism when lawmakers dictate that one product - corn fuel - the winner at the expense of another - affordable petroleum.

Ultimately, it’s the taxpayer and the environment that end up paying the price for this folly as the nation’s productive resources are diverted into the most wasteful endeavor of all: satisfying bureaucrats.